Kodak announced a salary freeze for all U.S. employees today. The company last froze salaries in 2009. An internal memo explains the decision. The question and answer portion at the bottom is particularly interesting.
Here is the memo:
As you know, in 2012 we are working hard to accelerate our transformation into a self-sustaining and profitable digital enterprise through a number of restructuring initiatives aimed at creating a competitive cost structure. In light of our focus on the transformation and based on our regular review of our overall compensation position relative to the market, we have determined that the U.S. operations will not conduct a salary review this year.
This means that in the U.S., there will be no 2012 annual salary review program for executive, exempt. or nonexempt employees. Outside the U.S., each country will develop and communicate salary review plans based on legal requirements and the local environment, subject to senior management review and approval.
Global Variable Pay (GVP) personal leverage – Consistent with the decision to not conduct an annual salary review in 2012, there will be no changes in U.S. GVP personal leverage for Level 2 employees in 2012. We will revisit personal leverage levels, based on market data, in 2013.
As a reminder, the U.S. Bankruptcy Court approved the continuation of GVP (along with Wage Dividend and EXCEL) for the 2012 performance year for payout, if earned, in 2013. 2012 GVP metrics will be communicated in the near future.
Goal Setting & Appraisal (GS&A) – The company remains committed to a performance-based culture. We will continue to use the GS&A process to drive alignment and ensure our collective efforts are focused on achieving the company's goals for 2012. In a March 7 letter to employees, Kodak CEO Antonio Perez noted that the company's four goals in 2012 are: (1) to maintain U.S. liquidity (cash) as defined in our DIP funding agreement; (2) to achieve expected EBITDA (earnings before interest, taxes, depreciation, and amortization) as defined in our DIP funding agreement; (3) to define our business plan for emergence, including appropriately sizing our cost structure; and (4) to foster employee engagement and instill confidence in the future of the company among employees, customers, suppliers and other partners.
2012 GS&A forms are now available in myHR. If you have not already done so, please begin working with your supervisor to develop 2012 goals that are aligned with the goals for the company and your unit. Goals should be developed and documented in GS&As by April 30.
If you have any questions, please contact your supervisor or Human Resources.
U.S. Questions and Answers
Q1. Is the salary freeze the result of a court decision?
A1. No. Kodak petitioned the court to allow the company to continue in the ordinary course to review our market position and determine if a salary review process was appropriate. As expected, the U.S. Bankruptcy Court granted our petition and left the decision up to management. In light of our overall market competitive position and our commitment to create a competitive cost structure, the company has determined that the U.S. will not conduct a salary review in 2012.
Q2. Does the salary freeze apply to senior managers in addition to Level 1 (nonexempt) and Level 2 (exempt) employees?
A2. Yes. There will be no 2012 U.S. annual salary review program for executives, Level 1, and Level 2 employees.
Q3. Has the company ever frozen salary increases before?
A3. Yes, in the past – and as recently as 2009 – we have determined either at the country or job level to not increase salaries. Salary decisions are made at a country level based on a number of factors, including legal requirements, market competitive position, and the company's performance and overall profitability.
Q4. Won't freezing salaries put Kodak at a disadvantage for retaining and attracting high performing employees?
A4. Offering market competitive total compensation continues to be our aim, despite the constrained approach for 2012.
Q5. What if an employee makes a change during the year to a higher level job?
A5. Throughout the year, in those limited cases where an individual makes a job change that involves a substantial increase in responsibility, we will assess compensation and make adjustments, if warranted, based on the job change.
Q6. Does the fact there is no salary review mean there is no opportunity for sequential promotions?
A6. Approved sequential promotions (in recognition of taking on additional responsibilities within the wage grade sequence of the job) for Salary Level 1 and Level 2 employees will be processed with an effective date of February 27, 2012. However, this year there will be no salary increases in recognition of sequential promotions.
Q7. If a 41 grade employee is sequentially promoted to 43 grade effective as of February 27, 2012, what happens to their GVP personal leverage?
A7 The employee will move from 5% personal leverage to 10% personal leverage on the promotion effective date. GVP awards are not prorated for changes in leverage throughout the year. Awards are calculated based on the employee's personal leverage as of December 30 of the plan year.